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Scottish LGPS hostile to pooling assets for pension funds

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Scottish local authority pension funds are largely opposed to pooling their assets in the style of England and Wales, according to an LGC survey.

Only 6% of 54 attendants at the LGC Investment Seminar Scotland backed the option of pooling outlined in a recent consultation of the Scottish Local Government Pension Scheme (LGPS).

That option is already being pursued by England and Wales, where 89 funds are in the process of moving assets into eight pools. Funds mostly retain the ability to set investment strategy but leave implementation of the strategy, including investment manager selection, to the pools.

Half of those polled during the seminar favoured closer collaboration between the 11 Scottish funds, with 37% backing mergers to create fewer funds. Only 7% opted for the status quo.

The opposition to pooling follows the news that Strathclyde and Lothian pension funds – Scotland’s two biggest – are also opposed to the idea, as revealed in their draft responses to the consultation.

Richard McIndoe, director of Strathclyde, told the seminar: “Pooling is a compromise solution in England and Wales because nobody could agree what the real answer to their problem was, so they agreed on something that nobody really likes.

“It’s a massive experiment. To date it’s been a very expensive experiment. That will continue. It’s a massive distraction from the day job of investing to pay pensions and there is a huge diversion of resource to that.

“Will it work? Who knows? It’ll be a long time before we know.

“There are huge challenges facing the scheme, but they are not structural problems or structural challenges, and I don’t think the solution to them is fundamentally structural.”

While pooling was firmly rejected, the significant support for mergers bolstered the position of Lothian, which itself had called for voluntary mergers in its response to the consultation.

Bruce Miller, chief investment officer at Lothian, told the seminar that merging was “the only option” that could achieve cost savings.

“It addresses the structural inefficiencies that the other models don’t,” Mr Miller said. “Greater collaboration might seem attractive, but we think this is a ‘not so easy’ option that perpetuates the current structure.”

Mr McIndoe had spoken in support of collaboration saying there had been more co-operation within the Scottish LGPS than came across in the consultation document, but that it should be deepened.

“There is scope definitely for more co-operation and I think there needs to be more real co-operation,” he said. “There needs to be much more collaboration, really delivering things together and working together as opposed to sharing things.”

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